The economy
Dog days come early
Jock Bruce-Gardyne
The dog days seem to have come upon us early this season. High summer is trad- itionally the time of year when governments get their knickers in a twist. But propriety usually decrees that July is well advanced before the ritual commences. This year, what with their Lordships snorting defiance at the so-called 'Paving Bill', Mr Arthur Scargill threatening to close down the steel industry to keep his miners company, the privatisation programme apparently holed below the waterline by the Enterprise Oil fiasco, the American banks raising their prime rates once again and gritting their teeth to acknowledge that some at least of their loans to Argentina are `non- performing', an accommodation at the European summit at Fontainebleau which looks set to come unravelled when they try to give substance to promises of future con- trol of agricultural spending, and talk of a `mini-Budget' from Chancellor Lawson to regain control of public spending here at home, our masters looked beset by tribula- tions even before June was out.
On closer inspection the catalogue of woes is surely rather overdone. Speculation about a mini-Budget falls into the category of Mark Twain's obituary: premature, at the least. Unlike last year, Mr Lawson equipped himself with a generous allowance for contingencies, even if it is being drawn down fairly rapidly through extra costs resulting from the miners' strike and items like the nurses' pay deal, and he also refrained from hazardous assumptions about departmental underspending. On the other side of the ledger the low sterling- dollar exchange rate must be doing wonders for the Treasury's receipts from North Sea oil; and while the building societies are con- tinuing to do their bit towards keeping the consumer boom alive and kicking, at least companies have no need to apply to their bank managers to finance their investment plans with cash aplenty in their tills. So a 'summer package' would only bring a song — a badly needed song — to Arthur Scargill's heart.
The one real anxiety on Mr Lawson's desk must be the exchange rate. In his Mais lecture last month he went out of his way to signal a preference for a strong, as opposed to a 'competitive', pound: and strong is not exactly the epithet that springs readily to mind about sterling just at present. To be sure it is the dollar rate that wilts alarming- ly, and in that respect the pound finds itself in good company. Unfortunately, while it is the rate against the Deutschemark and yen which the CBI tends to have in mind when it talks about competitiveness, it is the dollar rate which has the major impact on import prices, and hence eventually on in- flation expectations. So while the Bank of England's strikingly uncharacteristic ukase (drafted for it in the Treasury?) against higher interest rates last week achieved its immediate purpose and calmed the markets, `tomorrow', in the Bank's own words, 'is a different matter.' And last week's ukase cannot become a habit.
Similarly with the Enterprise Oil affair. The City doth protest too much. The underwriters agreed a minimum price for the tender (for a handsome fee): a price which was presumably accepted as offering them a fair balance of upside and downside possibilities. Had RTZ been allowed to buy the 49 per cent it wanted the underwriters would have been saved the obligation to swallow 80 million of the shares that they were left with — and also, by the same token, the painful duty of taking a turn on them when RTZ went buying in the market on Monday. Predictions that they will leave British Telecom to founder in revenge for this uncovenanted bonus have all the credibility of predictions from the Suez Canal Pilots' Association back in 1956 that Colonel Nasser's men would jam the canal.
That is not to say that the Government's handling of the flotation was a model of its kind. Plainly it was not. As the Public Accounts Committee had the grace to acknowledge in its recent critique of privatisation issues, it is easy to be wise after the event. But to come out with a retrospective ban on applicants for more than 10 per cent of the equity — `con- sistent', in Mr Walker's words, 'with the prospectus' maybe: but predictable from it, never — and then to watch the rejected suitor buying shares at a useful premium over what the Treasury received is not par- ticularly elegant. To go on to say that 'it was intended that the management would ... not be under the influence of any outside group ...' sounded hazardous last Thursday, and sure enough turned out to be so as RTZ set out to buy a Lonrho- sized stake in the market on Monday.
In any case it is hard to see what was the mark of Cain on RTZ. The general pre- sumption — whether shared at the Depart- ment of Energy or not — was that Peter Walker's `golden share' was intended for use if need be against some lustful Yanks or Arabs seeking to have their way with our precious North Sea oil, not to block the path of such a true-blue British clubland in- stitution as RTZ. But if Mr Walker really attached such overriding importance to preserving the independence of Enterprise Oil against all corners he should have copied the route taken with Ferranti when it was prised loose from the National Enterprise Board in 1979, and placed it in lock-ups with the City institutions for a term of years. He might not have got as much for it, but that's life.
So what does he do now? Send RTZ to the Monopolies and Mergers Commission? If that were indeed to be the method chosen to teach the pirates of St James's Square a lesson in deportment, the Commission should give it short shrift. That said, while there is no shortage of uncertainties attach- ed to the next stages in the planned privatisation programme — BT and British Airways — an underwriters' strike really is not now added to them.
As for those Argentine debts and related banking problems, the combination of Manufacturers Hanover biting the bullet of `non-performance' by its loans to Rio, dark gossip about Midland's dividend, and the continuing run on Continental Illinois plainly does nothing for morale in banking parlours. And we have it on the word of Mr Rhodes of Citibank, Chief Minder to the commercial banking community in respect of Latin America, that the latest is to be the last of the stop-gap deals with Argentina: so that if come September President Alfon- sin's men have not agreed terms with the IMF a long cortege of US banks (and Lon- don ones as well maybe?) will presumably be following Manny Hanny's example. That, at any rate, is what we (and still more the Argentinians) are supposed to think. Yet the fact remains that we were told repeatedly after the last-minute deal be- tween Rio and the commercial banks back at the end of March that never again would the banks proceed without a green light from the IMF: and that is precisely what they have done again. True the Argenti- nians were this time persuaded to dip into their foreign exchange reserves to make a genuine interest payment. Nevertheless agreement with the IMF still looks as far away as ever. So care to bet on what will happen come September, Mr Rhodes?
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